Mongolia faces hurdles in ramping up coal exports

* Mongolia wants to boost coal exports but needs investors * Infrastructure strained by trade with giant neighbours * Needs to weigh control of resources against incentives

ZHUHAI, China Sept 28 - Mongolia, with three times as much coal reserves as top thermal coal exporter Indonesia, is eager to boost its own exports of the fuel, but faces the dilemma of luring investors into the sector while still keeping control.
Shipments from the landlocked nation, dwarfed by neighbours Russia and China, will rise 30 percent in 2009 from a year earlier, to more than 5 million tonnes, but still less than half the government's target of 12 million, an industry official said.
"We could produce more, but we could not ship it out," Luvsandagva Davaatsedev, chairman of the Mongolia Coal Association, a group of coal miners, told Reuters on the sidelines of the Asia-Pacific Coal Trading Conference in Zhuhai.
The key problems were insufficient investment, poor infrastructure and a lack of direct access to other markets, he added. Mongolia ships the bulk of its coal to China, the world's largest consumer and producer of the fuel.
China's coal imports from Mongolia increased about a half from a year earlier to 3.63 million tonnes in the first eight months of this year, official Chinese customs data showed.
"Mongolia and China are considering a green-tech power plant at the Shivee Ovoo coal mine in the southeast of Ulaanbaatar that could consume 12-15 million tonnes of coal a year," Davaatsedev said. "The electricity output would then be exported to China."
With only state-owned coal firms are allowed to use the railways, private coal companies are forced to ship their product by road, adding to their costs, Davaatsadev said.
"The existing railway link was too busy to handle more coal cargoes because it was also a main route for Russian exports to China," he said.
A year ago, Davaatsedev had said Mongolia's coal exports to China could rise sixfold in five years, to about 25 million tonnes if certain large projects were to come online.
TAVAN TOLGOI DELAY
Eyeing major projects but short of funds, Ulaanbaatar is divided between retaining control of its coal assets and offering incentives to woo foreign investors, particularly to mine the Tavan Tolgoi coal deposit in southern Mongolia, which has proven reserves of more than 6 billion tonnes.
"We have lost some time there due to ownership disagreement," Davaatsedev said.
Coal production in the Tavan Tolgoi region had been expected to rise quickly and sharply if the government had approved the ownership structures.
Mongolia needs foreign participation to expand mine exploration, improve infrastructure facilities including rail, road, power and communication links besides revamping its laws, Davaatsedev added.
"Mongolia even does not have enough machines and equipment, or the technology, to perform regular checks on coal exports at its customs and inspection departments," he said.

Source: Reuters